SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549




FORM
10-Q




(Mark
One)




x QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the
quarterly period ended September 30, 2008




OR




o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
transition period from _________ to _________




Commission
file number 000-30785







CAMELOT
ENTERTAINMENT GROUP, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            52-2195605(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)




130
Vantis, Suite 130


Aliso Viejo, California 92656


(Address
of principal executive offices (zip code))




(949) 334 - 2950


(Registrant's
telephone number, including area code)




Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.




Yes xNo o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definition of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.




Large
      Accelerated Filer
            o
            Accelerated
      Filer
            oNon-Accelerated
      Filer
            o
            Smaller
      Reporting Company
            x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes oNo x






As of
September 30, 2008 the Registrant had outstanding 71,853,608 shares of Common
Stock, $0.001 par value. The registrant had outstanding 3,695,521 shares of
Preferred Stock series A, B, and C par value $0.001.


1


CAMELOT
ENTERTAINMENT GROUP, INC.


INDEX
TO FORM 10-Q





PART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements (Unaudited)
            4Balance
      Sheets as of September 30, 2008 and December 31, 2007
            4Statements
      of Operation for the three and nine months ended September 30, 2008
      and 2007
            5Statements
      of Cash Flows for the nine months ended September 30, 2008 and
      2007
            6Notes
      to Financial Statements
            7 -
      15Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            16Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            23Item
      4. Controls and Procedures
            24PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
            25Item
      2. Changes in Securities and Use of Proceeds
            25Item
      3. Defaults Upon Senior Securities
            25Item
      4. Submissions of Matters to a Vote of Security Holders
            25Item
      5. Other Information
            25Item
      6. Exhibits and Reports on Form 8-K
            25Signatures
            26


































2








THIS
REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE
SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING
STATEMENTS INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONCERNING OUR BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, REVENUES,
EXPENSES OR OTHER FINANCIAL ITEMS; AND STATEMENTS CONCERNING ASSUMPTIONS MADE OR
EXCEPTIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS
WHICH ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL
SECURITIES LAWS. ALL STATEMENTS, OTHER THAN HISTORICAL FINANCIAL INFORMATION,
MAY BE MARKET TO BE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVES", "PLANS",
"ANTICIPATES", "EXPECTS", AND SIMILAR EXPRESSIONS HEREIN ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS, UNCERTAINTIES, AND OTHER FACTORS, WHICH WOULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "FACTORS THAT MAY
AFFECT FUTURE RESULTS," AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN
THE COMPANY'S OTHER SEC FILINGS.





















































































3




Camelot
      Entertainment Group, Inc.
                (A
      Development Stage Company)Balance
      SheetsASSETSSeptember
      30,
              
              
              December
      31,2008
              
              
              2007Unaudited
              
              
              AuditedCurrent
      AssetsCash
              
              $
              126
              
              
              $
              122Prepaid
      Expenses
              
              
              -
              
              
              
              6,424Total
      Current Assets
              
              
              126
              
              
              
              6,546School
      District Deposit
              
              
              -
              
              
              
              50,000Deferred
      Financing Costs
              
              
              -
              
              
              
              54,984Scripts
      Costs
              
              
              -
              
              
              
              79,700Total
      other assets
              
              
              -
              
              
              
              184,684Total
      Assets
              
              $
              126
              
              
              $
              191,230LIABILITIES AND
      STOCKHOLDERS' DEFICITCurrent
      LiabilitiesAccounts
      Payable and Accured Liabilities
              
              $
              205,705
              
              
              $
              176,999Accrued
      Expenses to Related Parties
              
              
              574,530
              
              
              
              350,000Note
      Payable to Shareholder
              
              
              298,500
              
              
              
              300,000Shareholder
      Advances
              
              
              11,200
              
              
              
              134,757Convertible
      Note Payable
              
              
              15,000
              
              
              
              -Total
      Current Liabilities
              
              
              1,104,935
              
              
              
              961,756Long
      Term LiabilitiesDerivative
      Liability - Preferred Stock Series A, B, and C
              
              
              103,864
              
              
              
              726,223Secured
      Convertible Note Payable - NIR Fairhill net of discount
              
              
              150,829
              
              
              
              295,970Derivative
      Liability - Compound
              
              
              379,406
              
              
              
              542,661Derivative
      Liability - Warrant
              
              
              89,927
              
              
              
              50,759Total
      Long Term Liabilities
              
              
              724,026
              
              
              
              1,615,613Total
      Liabilities
              
              
              1,828,961
              
              
              
              2,577,369Series
      A, B, C Convertible Preferred Stock
              
              
              32,904
              
              
              
              28,152par
      value $.001 per share, 35,000,000 shares authorized: 1,347,510, 1,196,510
      and 1,151,500shares
      issued and 294,020, 281,520 and 0 outstanding as of September 30, 2008
      andDecember
      31, 2007, respectively.Stockholders'
      DeficitCommon
      Stock; Par Value $.001 Per Share; Authorized500,000,000
      Shares;72,161,942 and
      2,553,396 SharesIssued;
      and 71,853,608 and 2,245,063
      Outstanding at September 30, 2008 and December 31, 2007,
      respectively.
              
              
              71,854
              
              
              
              224,506Additional
      Paid-In Capital
              
              
              14,041,174
              
              
              
              13,637,649Deficit
      Accumulated During the Development Stage
              
              
              (15,974,767
              )
              
              
              (16,276,446
              )Total
      Stockholders' Deficit
              
              
              (1,861,739
              )
              
              
              (2,414,291
              )Total
      Liabilities and Stockholders' Deficit
              
              $
              126
              
              
              $
              163,078The
      accompanying notes are an integral part of these financial
      statements.




4




Camelot
      Entertainment Group, Inc.(A
      Development Stage Company)Statements
      of OperationsUnauditedFromInception
      onApril
      21, 1999For
      Three Months ended,
                
                
                For
      nine months ended,
                
                
                throughSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008REVENUE
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                58,568Total
      Revenue
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                58,568EXPENSESCosts
      of Services
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                95,700Sales
      and Marketing
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                53,959Research and
      Development
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                252,550General and
      Administrative
                
                
                472,957
                
                
                
                238,758
                
                
                
                874,769
                
                
                
                1,177,537
                
                
                
                12,886,420Impairment
      of Assets
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,402,338Impairment
      of Investments inOther
      Companies
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                710,868Total
      Expenses
                
                
                472,957
                
                
                
                238,758
                
                
                
                874,769
                
                
                
                1,177,537
                
                
                
                16,401,835NET
      OPERATING LOSS
                
                
                (472,957
                )
                
                
                (238,758
                )
                
                
                (874,769
                )
                
                
                (1,177,537
                )
                
                
                (16,343,267
                )OTHER
      INCOME (EXPENSES)Interest
      Expense
                
                
                (86,348
                )
                
                
                (121,979
                )
                
                
                (245,738
                )
                
                
                (585,935
                )
                
                
                (1,795,495
                )Gain
      on Derivative Liabilities
                
                
                327,522
                
                
                
                785,182
                
                
                
                1,222,187
                
                
                
                1,187,452
                
                
                
                1,708,495Other
      Income - CSI investors
                
                
                -
                
                
                
                -
                
                
                
                200,000
                
                
                
                -
                
                
                
                200,000Gain
      on extinguishment of debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                255,500Total
      Other Income (Expenses)
                
                
                241,174
                
                
                
                663,203
                
                
                
                1,176,449
                
                
                
                601,517
                
                
                
                368,500NET
      INCOME (LOSS)
                
                $
                (231,783
                )
                
                $
                424,445
                
                
                $
                301,680
                
                
                $
                (576,020
                )
                
                $
                (15,974,767
                )BASIC
      INCOME (LOSS) PER COMMON SHARE
                
                $
                (0.03
                )
                
                $
                0.35
                
                
                $
                0.07
                
                
                $
                (0.05
                )DILUTIVE
      INCOME (LOSS) PER COMMON SHARE
                
                $
                (0.03
                )
                
                $
                0.00
                
                
                $
                0.00
                
                
                $
                (0.05
                )WEIGHTED
      AVERAGE NUMBER OFSHARES
      OUTSTANDING - BASIC
                
                
                7,556,033
                
                
                
                1,225,416
                
                
                
                4,120,814
                
                
                
                1,229,582DILUTIVE
                
                
                7,556,033
                
                
                
                300,000,000
                
                
                
                500,000,000
                
                
                
                1,229,582The
      accompanying notes are an integral part of these financial
      statements.
  
 5


Camelot
      Entertainment Group, Inc.(A
      Development Stage Company)Statement
      of Cash Flows(Unaudited)FromInception
      onApril
      21, 1999For
      Nine Months Ended
                
                
                throughSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008OPERATING
      ACTIVITIESNet
      (loss) income for the period
                
                $
                301,680
                
                
                $
                (576,020
                )
                
                $
                (15,974,767
                )Adjustments
      to reconcile net (loss) to cash provided (used) by operating
      activities:Amount
      of Deferred Financing Cost
                
                
                -
                
                
                
                25,338
                
                
                
                -Amount
      of Discount associated with Note Payable -NIR & Scorpion Bay
      LLC
                
                
                179,659
                
                
                
                201,949
                
                
                
                475,883Imputed
      Interest on Note Payable
                
                
                13,500
                
                
                
                2,908
                
                
                
                34,984Gain
      (loss) on Derivative Liability
                
                
                (1,222,187
                )
                
                
                (1,187,452
                )
                
                
                (1,063,386
                )Common
      Stock issued for interest expenses
                
                
                14,000
                
                
                
                300,000
                
                
                
                579,459Common
      stock issued per dilution agreement
                
                
                -
                
                
                
                -
                
                
                
                368,508Value
      of options expensed
                
                
                -
                
                
                
                -
                
                
                
                351,000Gain
      on extinguishment of debt
                
                
                -
                
                
                
                -
                
                
                
                (255,500
                )Depreciation
                
                
                -
                
                
                
                -
                
                
                
                3,997Amortization
      of deferred compensation
                
                
                -
                
                
                
                -
                
                
                
                1,538,927Common
      Stock issued for services
                
                
                287,549
                
                
                
                70,054
                
                
                
                3,478,978Common
      Stock issued for expense reimbursement
                
                
                -
                
                
                
                -
                
                
                
                22,000Common
      Stock issued for technology
                
                
                -
                
                
                
                -
                
                
                
                19,167Impairment
      of investments in other companies
                
                
                -
                
                
                
                -
                
                
                
                710,868Impairment
      of assets
                
                
                129,700
                
                
                
                -
                
                
                
                2,758,060Prepaid
      services expensed
                
                
                -
                
                
                
                -
                
                
                
                536,424Expenses
      paid through notes payable proceeds
                
                
                -
                
                
                
                -
                
                
                
                66,439Loss
      on disposal of property and equipment
                
                
                -
                
                
                
                -
                
                
                
                5,854Preferred
      Stock issued to shareholder
                
                
                -
                
                
                
                -
                
                
                
                3,366,000Change
      in assets and liabilities:(increase)
      decrease in other current assets
                
                
                6,424
                
                
                
                -
                
                
                
                (6,858
                )Increase
      (decrease) in accounts payable & other a/p
                
                
                28,706
                
                
                
                523,872
                
                
                
                412,896Increase
      (decrease) in due to officers
                
                
                224,530
                
                
                
                
                
                
                
                574,530Net
      Cash provided (used) by operating activities
                
                
                (36,439
                )
                
                
                (639,351
                )
                
                
                (1,996,536
                )Cash
      flows from investing activities:Purchase
      of fixed assets
                
                
                -
                
                
                
                -
                
                
                
                (6,689
                )Purchase
      of assets-Script Costs/business deposits
                
                
                -
                
                
                
                (103,900
                )
                
                
                (129,700
                )Cash
      provided (used) from investing activities
                
                
                -
                
                
                
                (103,900
                )
                
                
                (136,389
                )Cash
      flows from financing activities:Contributed
      capital
                
                
                
                
                
                
                
                
                
                
                25,500Proceeds
      from related party note payable
                
                
                -
                
                
                
                156,565
                
                
                
                1,191,613Proceeds
      from Convertible note payable
                
                
                150,000
                
                
                
                709,800
                
                
                
                1,317,998Advances
      to affiliate / shareholders loans
                
                
                29,107
                
                
                
                (295,051
                )
                
                
                264,232Payments
      from shareholder advances
                
                
                (142,664
                )
                
                
                (13,000
                )
                
                
                (412,955
                )Principal
      Payment on short term note
                
                
                -
                
                
                
                (250,000
                )
                
                
                (254,477
                )Cash
      provided (used) in financing activities
                
                
                36,443
                
                
                
                308,314
                
                
                
                2,131,911Increase
      (decrease) in cash
                
                
                4
                
                
                
                (434,937
                )
                
                
                (1,014
                )Cash
      at beginning of period
                
                
                122
                
                
                
                435,533
                
                
                
                1,140Cash
      at the end of the period
                
                $
                126
                
                
                $
                596
                
                
                $
                126Non
      - Cash TransactionsStock
      issued for related party debt
                
                
                -
                
                
                
                16,078
                
                
                
                248,581Creation
      of additional debt discount
                
                
                -
                
                
                
                320,315
                
                
                
                920,315Accelerated
      amortization of disount on Note Payable
                
                
                -
                
                
                
                40,011
                
                
                
                40,011Stock
      issued for debt conversion
                
                
                30,701
                
                
                
                50,912
                
                
                
                87,149Stock
      issued per finance agreement
                
                
                -
                
                
                
                -
                
                
                
                500,000Derivative
      liability relieved by conversion
                
                
                19,722
                
                
                
                35,204
                
                
                
                68,121The
      accompanying notes are an integral part of these financial
      statements.
  
 6
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)





1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 
 Camelot
Entertainment Group, Inc. (the “Company” or “Camelot”), a Delaware corporation,
is a development stage film, television, digital media and entertainment
company. The Company classifies its businesses into the following three major
divisions:
 
 ●
                Camelot
      Film Group, consisting principally of feature film, television, home
      video, and digital media production and
  distribution;
 
 ●
                Camelot
      Studio Group, consisting principally of site acquisition, design,
      development and operation of Camelot Studio locations domestically and
      internationally;
 
 ●
                Camelot
      Production Services Group, consisting principally of consulting,
      education, finance, production support and technology
      services.
 
 At
September 30, 2008, the Company had a total of two (2) employees and
approximately four (4) consultants, which provide services to the Company on an
as needed basis. The Company also retains independent contractors on a
project-by-project basis. The Company has reorganized its operating structure to
minimize expenses during the current uncertain economic conditions while
maintaining its ongoing and planned activity levels, including planned
acquisitions, by outsourcing professional and industry services whenever and
wherever possible. The Company has been severely impacted by the recent
worldwide economic downturn. The steps the Company has taken are designed to
allow it to withstand current market conditions and continue operations, albeit
on a minimal basis. The Company is currently relying on advances from its
Chairman, Robert Atwell, to sustain operations until it can obtain additional
funding or generate revenues through ongoing operations or as a result of
contemplated acquisitions which, if completed, could generate ongoing revenues
for the Company. In the event Atwell is unable to make advances and no other
funding and or revenues can be generated, the Company would be forced to further
reduce operations until such funding and or revenues could be
generated.
 
 Basis of
Presentation
 
 Camelot
is considered to be a development stage enterprise as defined in Statement of
Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by
Development Stage Enterprises.” Consequently, Camelot has presented these
financial statements in accordance with that Statement, including losses
incurred from April 21, 1999 (Inception) to September 30, 2008. The Company has
not presented the statement of stockholders’ deficit for the nine months ended
September 30, 2008, as the significant transactions relate to the issuance of
common stock issued for services and conversions of debt which are described
elsewhere in the document.
 
 The
accompanying unaudited financial statements as of September 30, 2008 and for the
nine months ended September 30, 2008 and 2007, respectively, have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information, pursuant to the rules of the regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for audited financial statements. The notes to the financial
statements which would substantially duplicate the disclosures contained in the
audited financial statements for the most recent calendar year 2007 as
reported in the Company's Form 10-KSB have been omitted.  The results of
operations for the nine months ended September 30, 2008 and 2007 are not
necessarily indicative of the results to be expected for the full year. In the
opinion of Camelot’s management, the interim information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. The footnote
disclosures related to the interim financial information included herein are
also unaudited. Such financial information should be read in conjunction with
the financial statements and related notes thereto which are part of the
Company’s Annual Report on Form 10-KSB for the year ended December 31,
2007.
 
 Script
Costs
 
 Camelot
capitalizes costs it incurs to buy or develop scripts that will later be used in
the production of films according to the guidelines in Statement of Position
(“SOP”) SOP 00-2. During the nine months ended Camelot expensed all script costs
previously capitalized of $79,700 as the scripts were not in production and had
been outstanding in excess of three years.
 
 Modifications to Convertible
Debt
 
 The
Company accounts for modifications of ECFs in accordance with EITF 06-6 “Debtors
Accounting for a Modification (or exchange) of Convertible Debt
Instruments”.  EITF 06-6 requires the modification of a convertible
debt instrument that changes the fair value of an ECF be recorded as a debt
discount and amortized to interest expense over the remaining life of the
debt.  If modification is considered a substantial (i.e. greater than
10% of the carrying value of the debt), an extinguishment of the debt is deemed
to have occurred, resulting in the recognition of an extinguishment gain or
loss.
 
 Earnings (Loss) per
Share
 
 Basic
earnings (loss) per share are based on the weighted average number of shares of
common stock outstanding during the period.  Diluted earnings (loss)
per share also includes the effect of stock options, other common stock
equivalents outstanding during the during the period, and assumes the conversion
of the Company’s Series A and B preferred stock and conversion of convertible
notes payable for the period of time such stock and notes were outstanding, if
such preferred stock and convertible notes are dilutive.  For the
three and nine months ended September 30, 2008, dilutive securities on a fully
converted basis would cause the Company to be in excess of their authorized
shares of 500,000,000. Thus, the dilutive earnings per share for the nine months
ended September 30, 2008 is limited to the amount of common stock authorized by
the Company’s stockholders.
   7
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES-
continued
 Earnings
(Loss) per Share-
continued
    Three
      Months
                  September
      30,
                  2008
                
                
                Three
      Months
                  September
      30,
                  2007
                
                
                Nine
      Months September 30, 2008
                
                
                Nine
      Months
                  September
      30, 2007Weighted
      average common shares outstandingUsed
      in calculating basic earnings (loss) per share
                
                
                7,556,033
                
                
                
                1,225,416
                
                
                
                4,120,814
                
                
                
                1,229,582Effect
      of dilutive convertible preferred stock and notes
                
                
                -
                
                
                
                298,774,584
                
                
                
                495,879,186
                
                
                
                -Weighted
      average common shares outstanding used inCalculating
      diluted earnings (loss) per share
                
                
                7,556,033
                
                
                
                300,000,000
                
                
                
                500,000,000
                
                
                
                1,229,582
  As of
September 30, 2008, the Company has only 500,000,000 shares authorized, thus the
effects of convertible preferred stock and notes into common stock are limited
to the amount authorized by the Company’s stockholders.




Recent Accounting
Pronouncements


In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141(R), “Business Combinations” (“SFAS 141(R)”), which replaces FAS 141. SFAS
141(R) establishes principles and requirements for how an acquirer in a business
combination recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any controlling interest;
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. FAS 141(R) is to be applied prospectively
to business combinations.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”), which addresses the accounting and reporting framework for minority
interests by a parent company. SFAS 160 also addresses disclosure requirements
to distinguish between interests of the parent and interests of the
noncontrolling owners of a subsidiary. SFAS 160 will become effective beginning
with our first quarter of 2009. The Company is currently evaluating the impact
of this standard on our financial statements.
 
 2.  GOING
CONCERN
  The
accompanying financial statements have been prepared assuming that Camelot will
continue as a going concern. During the nine months ended September 30, 2008,
Camelot had no revenue producing operations, at September 30, 2008 a negative
working capital of $1,104,809 and an accumulated deficit from Inception of
$15,974,767. These conditions raise substantial doubt about Camelot’s ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the classification of
liabilities that may result from the outcome of this uncertainty.
 
 Management’s
plans with respect to the current situation consist of restructuring its debt,
seeking additional financial resources from its existing investors, note
holders, debt holders, officers, directors (past and present) and it’s CEO
Robert Atwell.  In addition, the Company is planning a major capital
raising effort during the fourth quarter of 2008 or early 2009. However,
especially due to the current worldwide economic conditions, there can be no
assurances that our efforts will be successful. If current conditions persist,
the Company may have to delay its planned major capital raising efforts. During
the nine months ended September 30, 2008, the Company sold 2% of its interest in
CDG for $200,000 and this money was used fund Camelot Entertainment Group’s
operating expenses and used to reduce related-party payables. During the
quarter, the Company issued $160,000 in secured notes payable, see Note 8 for
additional information.
 
 3.  INVESTMENT
  On
November 5, 2007, Camelot Development Group, LLC (“CDG”), which on that date was
owned 100% by Camelot, entered into an Operating Agreement known as Camelot
Development Tustin (“CDT”) with Janez Investments XI Tustin, LLC (“Janez”), for
the purpose of master developing the Advanced Technology and Education Park
(“ATEP”) in Tustin, California and the subsequent acquisition of real property
through a ground lease with the South Orange County Community College District
(“SOCCCD”) in order to develop and build Camelot’s first major studio complex
which is planned to be located at ATEP campus (“Project”). Under the terms of
the Operating Agreement, Camelot has been credited with an initial investment of
$1,500,000 into the Project, representing previous expenditures made by Camelot.
Janez is obligated under the terms of the CDT Agreement contribute cash to CDT
in the sum of $1,500,000 as and when necessary to pay for predevelopment costs
or acquisition expenses as set forth in the Business Plan for the
Project.  In addition, Camelot will be responsible for one half of
future expenditures once Janez $1,500,000 contribution has been
extinguished.  As of September 30, 2008, Camelot has terminated its
involvement in the CDT project following a request by Janez to restructure the
Operating Agreement. This request has resulted in the CDT project being mutually
terminated by Camelot and the SOCCCD.
 
 The
Company accounts for the investment under the equity method of
accounting.  The Company did not record an initial investment in CDG
as the intangible asset transferred could not be stepped up in basis because it
did not have an ascertainable value nor can it be guaranteed that the asset will
be ultimately recovered. In addition, the Company and Janez will be paid for
their services from CDG.  Total development costs by CDG during the
nine months ended September 30, 2008, were $304,277 of which $146,053 was
attributable to the Company. Due to the zero basis in the investment, the
Company did not record any of the losses in the accompanying statement of
operations in 2008. As of September 30, 2008, the project has been terminated.
In connection with the termination, the Company expensed the $50,000 deposit
that had previously paid.
  8
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
 
 3.  INVESTMENT-
continued
  In
January 2008, we agreed to sell up to 30% of our interest in CDG to Camelot
Studio Investors, LLC (“CSI”) for up to $3,000,000 on an as needed
basis.   In addition, CSI receives 1,000 shares of our $0.001 par
value Series C Convertible Preferred Stock for each one half of one percent
(.05%) of CDG purchased by CSI. 11,515 Series C Convertible Preferred Shares
were issued to eleven shareholders during the nine months ended, September 30,
2008.  The managing member of CSI is Scorpion Bay, LLC, which is
managed by Timothy Wilson, one of our previous directors, who resigned in May
2008. The proceeds from the sale were to be utilized to retire debt and to fund
operations. During the nine months ended September 30, 2008, the Company sold 2%
of its interest for $200,000 in cash and another 3% for additional debt
converted into shares. At September 30 2008, the Company investment in CDG is
not relevant since the CDT project has been terminated.




4.  CONVERTIBLE
NOTES PAYABLE


2006 and 2007 Convertible
Notes Payable
 
 On
December 27, 2006, Camelot issued a callable secured convertible note payable
for $1,000,000 to various holders. Camelot received the proceeds in two
tranches: $600,000 gross proceeds were received in December 2006 and $400,000 in
gross proceeds was received in June 2007 when the required registration
statement was deemed effective. The note payable provided for annual interest at
8%, was secured by all of the assets of the Company, and matures on December 27,
2009. The principle and accrued interest of the note is convertible into
Camelot’s common stock at a variable conversion price, which is 40% of the
average market price of the common stock of the lowest three trading days prior
to the date of conversion. In addition, these notes have registration rights
agreements, which call for liquidated damages in the event an effective
registration statement is not filed within a timely basis. In addition, the
holders of these notes and the placement agent were issued seven-year warrants
to purchase 105,826 common shares at an exercise price of $15.00 per share. The
warrants were issued in connection with the first tranche received.
 
 Camelot
evaluated the notes and warrants under SFAS 133 “Accounting for Derivative
Instruments and Hedging Activities” and EITF 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock” and determined that the notes contained compound embedded derivative
liabilities. The warrants were also determined to be liabilities under SFAS 133
and EITF 00-19. Camelot determined that the compound embedded conversion
features required bi-furcation from the note instrument and required an estimate
of its fair market value. The fair market value of the compound embedded
derivative was estimated using a lattice model incorporating weighted average
probability cash flow. The fair market value of the warrants was estimated using
the Black Scholes model.
 
 On August
14, 2008, in connection with a subsequent funding discussed below, the Company
modified the interest rate to 10% and the discount on conversion to 50%. The
Company determined that this modification was considered “significant” and thus
qualified the note for extinguishments under EITF 06-6. Thus the Company
accounted for the extinguishment of the convertible notes, warrants and embedded
conversion feature in accordance with APB 26. In accordance with these
provisions, the Company recorded a non-cash loss on the extinguishment based on
the difference between the fair value of the new instruments issued and the
difference between the carry value and stated value of the convertible debt and
fair value of the derivative liabilities immediately prior to
extinguishment.  In connection with the modification, the Company
recorded an extinguishment loss of $211,212 which is recorded in the gain on
derivative liability on the accompanying statement of operations.
 
 2008 Convertible Notes
Payable
 
 On August
14, 2008, Camelot issued a callable secured convertible note payable for
$160,000 to various holders. Camelot received the proceeds in August and
September 2008. The note payable provided for annual interest at 10%, was
secured by all of the assets of the Company, and matures on May 10, 2011. The
principle and accrued interest of the note is convertible into Camelot’s common
stock at a variable conversion price which is 50% of the average market price of
the common stock of the lowest three trading days prior to the date of
conversion. The proceeds were used for working capital purposes and advances
from related parties. In addition, the investors shall receive 20,000,000
cashless warrants at an exercise price of $0.01 which expire in seven
years.
 
 Camelot
evaluated the notes and warrants under SFAS 133 “Accounting for Derivative
Instruments and Hedging Activities” and EITF 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock” and determined that the notes contained compound embedded derivative
liabilities. The warrants were also determined to be liabilities under SFAS 133
and EITF 00-19. Camelot determined that the compound embedded conversion
features required bi-furcation from the note instrument and required an estimate
of its fair market value. The fair market value of the compound embedded
derivative was estimated using a lattice model incorporating weighted average
probability cash flow. The fair market value of the warrants was estimated using
the Black Scholes model.
 
 Conversions and Valuation of
Derivative Liabilities
 
 As of
September 30, 2008, Camelot estimated the fair value of the derivatives
liabilities to be a total of $379,406 resulting in gain on derivative liability
presented in the statement of operations for the nine months ended September 30,
2008 of $503,480, including a day one charge related to the additional $160,000
in convertible notes payable of $1,378,742. As of September 30, 2008, the
principal balances of the notes were $1,055,498.
  At
September 30, 2008, the fair market value of the compound embedded derivative
was estimated using a lattice model incorporating weighted average probability
cash flow. The valuation was calculated using a lattice model with the following
assumptions: the stock price would increase in the short term at the cost of
equity with a 250% volatility, there was a 95% probability the Company would not
be in default of its registration requirements, assuming an event of default
occurring 5% of the time increasing .10% per month, reset events projected to
occur 5% of the time at an exercise price of $0.0034, the holder would
automatically convert at a stock price of $20.00 if the registration was
effective and the Company was not in default, the Company would trigger
redemption of the note when available at a stock price of $10.00 or higher,
alternative financing would be initially available to redeem the note and start
to increase monthly by 10% of the notes to a maximum of 75% and the trading
volume would increase at 1% per month. At September 30, 2008, the fair market
value of the warrants was estimated using Black Scholes with the following
weighted average major assumptions of (1) calculated volatility of 250%; (2)
expected term of six years; (3) risk free rate of 3.15% and (4) expected
dividends of zero.
 
 During
the nine months ended September 30, 2008, the holders of convertible notes
converted $20,701 resulting in the issuance of 1,917,200 shares of common stock.
Upon conversion, the Company reclassed approximately $19,722 of the compound
derivative to additional paid-in capital.
   9
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  4.  CONVERTIBLE
NOTES PAYABLE -
continued
  Conversions
and Valuation of Derivative Liabilities -
continued
  In the
event of full conversion of the aggregate principal amount of the notes of
$1,055,498 as of September 30, 2008, we would have to issue a total of
1,761,246,950 shares of common stock, which exceeds our authorized shares of
500,000,000. However, due to contractual limitations, the most that could be
converted in any singular conversion is approximately 4,000,000 shares, or 4.99%
of the outstanding. In addition, there are contractual limitations that could be
imposed by Camelot that would result in the inability of the note holders to
convert during any given 30-day period. There is no limit to the number of
shares that Camelot may be required to issue upon conversion of the notes, as it
is dependent upon Camelot’s share price, which varies from day to day. This
could cause significant downward pressure on the price of Camelot’s common
stock.
 
 Transfer of Note
Payable
 
 On August
28, 2008, the Company’s CEO entered into an agreement with a third party to
assume $25,000 of amounts due to him from the Company. Under the terms of the
agreement, the note accrues interest at 15%, is due in one year, and is
convertible at 50% of the average market price of the common stock of the lowest
three trading days prior to the date of conversion.  Due to the
significant changes to the term of the loan the Company treated the modification
as an extinguishment. There was no impact on the financial statements. On
September 12, 2008, the third party converted $10,000 of the note into 2,000,000
shares of common stock. In connection of the issuance the Company recorded a
beneficial conversion of approximately $12,000.
 
 5.  RELATED
PARTY TRANSACTIONS
 
 Accrued
Salaries
 
 At
September 30, 2008 the Company has accrued $574,530 in compensation to its
current officers.  The amount due to officers includes: Robert Atwell,
$435,000 and George Jackson, $139,530.
 
 Advances
from Affiliates
 
 During
the nine months ended September 30, 2008, the Company received $29,107 in
advances from an affiliate owned by the CEO. During the nine months ended
September 30, 2008, the Company paid $142,664 of these amounts, leaving a
balance due of $11,200 at September 30, 2008.


Robert
Atwell
 
 In
October 2007, the $300,000 note payable due to the Scorpion Bay, LLC was
transferred to property owned by Robert Atwell in which secured the note
payable. The note is due on demand and incurs interest at 6%. During the nine
months ended September 30, 2008, the Company accrued $13,500 in interest
expense. As of September 30, 2008, the principal balance due on this note was
$275,000 due to the transfer of liability discussed above. See subsequent events
for additional transfers of the liability to third parties.
 
 Scorpion Bay,
LLC
 
 Timothy
Wilson (“Wilson”), one of our previous directors (resigned in May 2008) and a
stockholder of the Company, is the managing member of Scorpion Bay, LLC
(“Scorpion”), which owns 50% of JIT. Wilson is also the managing member of CSI
and PSP. See Note 3 and 6 for transactions.
 
 6.  PREFERRED
STOCK
 
 As of
September 30, 2008, there were 1,347,510 shares outstanding of our $0.001 par
value Series A Convertible Preferred Stock. The Series A Preferred converts to
four shares of common stock for every one share of Series A Preferred Stock.
Each share of Series A Preferred Stock is entitled to 50 votes. Series A
Preferred ranks superior to our common stock and ranks junior to our Series B
Preferred Stock.
 
 As of
September 30, 2008, there were 1,196,510 shares outstanding of our $0.001 par
value Series B Convertible Preferred Stock. The Series B Preferred converts to
10 shares of common stock for every one share of Series B Preferred Stock. Each
share of Series B Preferred Stock is entitled to 1,000 votes. Series B Preferred
ranks superior to all other classes of stock.
 
 On
January 8, 2008, Camelot established a Series C Convertible Preferred Class of
stock of which 10,000,000 shares were authorized. The Series C Convertible
Preferred converts to one share of common stock for every one share of Series C
Convertible Preferred Stock. Each share of Series C Preferred Stock is entitled
to one vote. The Company’s Series A and B are superior to the Series C
Convertible Preferred. To date 1,151,500 Series C Convertible Preferred shares
have been issued.
 
 Issuances of Preferred
Stock
 
 On
January 1, 2008, 12,500 shares of Series A convertible preferred stock were
issued to Scorpion Bay, LLC for services rendered in connection with the studio
project. The shares were valued at $25,000 based on the estimated fair value of
the Series A convertible preferred stock on the date of issuance and expensed.
The fair value is based upon the closing market price of the Company’s common
stock on the date of issuance assuming no future performance commitments
exist.  All shares discussed below are valued using the same
assumptions.
 
 On August
13, 2008, the Company issued Scorpion Bay, LLC 7,500 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of ATEP.
 10
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  6.  PREFERRED
STOCK-
continued
  Issuances
of Preferred Stock -
continued
  On August
13, 2008, the Company issued Tim McCullium 500 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued George Jackson 1,000 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued The Atwell Group 30,000 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued Sea Castle, LLC 500 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued Joseph Petrucelli 1,000 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued Pacific Surf Partners, LP 2,500 $0.001 par value
Class C Convertible Preferred shares at $0.05 per share in reference to the
development of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued Octy, Inc. 7,750 $0.001 par value Class C
Convertible Preferred shares at $0.05 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued Jeff Brown 500 $0.001 par value Class C Convertible
Preferred shares at $0.05 per share in reference to the development of Camelot
Studios at ATEP.
 
 On August
13, 2008, the Company issued Irene Aurand 250 $0.001 par value Class C
Convertible Preferred shares at $0.005 per share in reference to the development
of Camelot Studios at ATEP.
 
 On August
13, 2008, the Company issued George Jackson 10,000 shares of its $0.001 par
value Class B Convertible Preferred stock at $0.05 per Share for services and
other consideration rendered to the Company.
 
 On August
13, 2008, the Company issued George Jackson 10,000 shares of its $0.001 par
value Class A Convertible Preferred stock at $0.20 per Share for services and
other consideration rendered to the Company.
 
 On August
13, 2008, the Company issued Robert Atwell 30,000 shares of its $0.001 par value
Class A Convertible Preferred stock at $0.20 per Share for services and other
consideration rendered to the Company.
 
 On
September 26, 2008, the Company issued George Jackson 100,000 shares of its
$0.001 par value Class B Convertible Preferred stock at $0.022 per Share for
services and other consideration rendered to the Company.
 
 On
September 26, 2008, the Company issued Robert Atwell 1,000,000 shares of its
$0.001 par value Class B Convertible Preferred stock at $0.022 per Share for
services and other consideration rendered to the Company.
 
 On
September 26, 2008, the Company issued George Jackson 100,000 shares of its
$0.001 par value Class C Convertible Preferred stock at $0.0022 per Share for
services and other consideration rendered to the Company.
 
 On
September 26, 2008, the Company issued Robert Atwell 1,000,000 shares of its
$0.001 par value Class C Convertible Preferred stock at $0.0022 per Share for
services and other consideration rendered to the Company.
 
 Derivative
Valuation
 
 At the
time of issuance of the Series A, B and C convertible preferred stock, the
Company did not have enough authorized shares on a fully diluted basis due to
the conversion feature of the convertible notes, which caused the Series A, B
and C convertible preferred stock to be tainted, and more akin to debt. In
addition, management determined that the Series A convertible preferred
contained compound embedded derivative liabilities under SFAS 133 and EITF
00-19, because of the classification of these securities as
liabilities. The Company determined that the compound embedded conversion
features required bifurcation from the remaining Series A, B and C convertible
preferred and required an estimate of its fair market value. The fair
market value of the compound embedded derivative was estimated using a lattice
model incorporating weighted average probability cash flow.
   11
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  6.  PREFERRED
STOCK-
continued
  Derivative Valuation-
continued
  On the
date of the issuance, the fair market value of the compound embedded derivative
associated with the Series A, B and C convertible preferred stock was estimated
to be $143,118 and resulted in the Series A, B and C convertible preferred stock
being discounted to its par value. Due to the excess fair value of the compound
embedded derivative over the proceeds of $46,885, the Company recorded an
immediate charge to derivative gain (loss).


As of
September 30, 2008, the Company estimated the fair value of the preferred stock
derivative liabilities to be a total of $103,864 resulting in a gain on
derivative liability presented in the statement of operations of $718,707. At
September 30, 2008, the fair market value of the conversion feature derivative
related to the Series A, B and C Convertible Preferred stock was estimated using
a lattice model incorporating weighted average probability cash flow. The
valuation was calculated using a lattice model with the following weighted
average assumptions: the stock price would increase in the short term at the
cost of equity with a 190% volatility and there was a 100% probability the
Company would not be in default of its registration requirements as there were
none.
  7.
 STOCKHOLDERS’ DEFICIT
 
 On
February 18, 2008, the Company’s board of directors increased the authorized
shares of common stock to 500,000,000.
 
 Reverse
Stock Split
  On August
19, 2008, the Board of Directors approved a 100-for-1 reverse stock split of all
of our outstanding common and preferred stock. As a result of the reverse stock
split, effective August 29, 2008, the number of outstanding common shares was
reduced from 434,727,332 to 4,347,316, as of August 29, 2008, and the number of
our outstanding preferred stock was reduced from 39,552,047 to 395,521. All
references to our common stock in the balance of this Report have been restated
to reflect the reverse stock split.
 
 Common
Stock Issued for Services and Other Consideration
 Closing
Market Price is determined by the closing bid price of the stock at the market
close, which is normally 4 p.m. EST
  For all
common stock issued the shares were valued based on the closing market price of
the Company’s common stock on the date of issuance and expensed immediately as
there were no future performance requirements.
 
 On
February 24, 2008, the Company issued 10,000 shares of common shares valued at
$0.50 per share to a public relations firm for professional services rendered in
connection with the Tustin Studio project.
 
 On August
1, 2008, the Company issued 1,000,000 shares to an escrow account for future
funding and other corporate transactions in order to meet current and
contemplated terms and conditions of consulting and funding agreements. The
issuance did not have a financial statement impact. As of September 30, 2008,
990,000 of these shares are held in treasury.
 
 On August
13, 2008, the Company issued Scorpion Bay, LLC 92,210 Shares at $0.05 per share
in accordance with various agreements between the Company and Scorpion Bay in
reference to the development of Camelot Studios at ATEP at the Advanced
Education and Technology Park (“ATEP”) in Tustin, California.
 
 On August
13, 2008, the Company issued George Jackson, our CFO, 200,000 Shares at $0.05
per share for services rendered to the Company.
 
 On August
13, 2008, the Company issued The Atwell Group 280,000 shares at $0.05 per share
for services and other consideration provided by Robert Atwell, our
CEO.
 
 On August
13, 2008, the Company issued The Corporate Solution, Inc. 100,000 shares at
$0.03 per share for services and other consideration provided to the Company.
The Corporate Solution is owned by Robert Atwell, our CEO.
 
 On August
27, 2008, the Company issued Jeff Brown 10,000 shares at $0.03 per share for
services and other consideration in reference to the development of Camelot
Studios at ATEP at the Advanced Education and Technology Park (“ATEP”) in
Tustin, California, through our Camelot Studio Group division. These shares were
issued from the escrow shares.
 
 On
September 5, 2008, the Company issued Patrick Winn 250,000 shares at $0.012 per
share for administrative services rendered to the Company.
 
 On
September 18, 2008, the Company issued Robert Atwell 2,000,000 shares at $0.003
per share for services rendered to the Company and other
consideration.
 
 On
September 18, 2008, the Company issued George Jackson 300,000 shares at $0.003
per share for services rendered to the Company and other
consideration.
 
 On
September 19, 2008, the Company issued Robert Atwell 5,000,000 shares at $0.002
per share for services rendered to the Company and other
consideration.
 
 On
September 19, 2008, the Company issued George Jackson 1,000,000 shares at $0.002
per share for services rendered to the Company and other
consideration.
  On
September 19, 2008, the Company issued Patrick Winn 500,000 shares at $0.002 per
share for administrative services rendered to the Company and other
consideration.
 
 On
September 26, 2008, the Company issued George Jackson 2,000,000 shares at $0.002
per share for services rendered to the Company and other
consideration.
 
 On
September 26, 2008, the Company issued Robert Atwell 31,818,180 shares at $0.002
per share for services rendered to the Company and other
consideration.
   12
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  7.  STOCKHOLDERS’
DEFICIT-
continued
  Common Stock Issued for
Services - continued
  On
September 26, 2008, the Company issued Chris Flannery 1,000,000 shares at $0.002
per share for legal services rendered to the Company and other
consideration.


On
September 26, 2008, the Company issued Thomas Stepp 1,000,000 shares at $0.002
per share for legal services rendered to the Company and other
consideration.
 
 On
September 26, 2008, the Company issued Patrick Winn 500,000 shares at $0.002 per
share for administrative services rendered to the Company and other
consideration.
 
 On
September 26, 2008, the Company issued Joe Petrucelli 1,000,000 shares at $0.002
per share for legal services rendered to the Company and other
consideration.
 
 On
September 26, 2008, the Company issued Vince Monaco 1,000,000 shares at $0.002
per share for consulting services related to ATEP rendered to the Company and
other consideration.
 
 On
September 26, 2008, the Company issued Phillip Parsons 1,000,000 shares at
$0.002 per share for services rendered to the Company and other
consideration.
 
 On
September 27, 2008, the Company issued Douglas Warner 2,000,000 Shares at $0.002
per share for consulting services related to ATEP rendered to the Company and
other consideration.
 
 On
September 27, 2008, the Company issued Gary Bastien 2,000,000 Shares at $0.002
per share for consulting services related to ATEP rendered to the Company and
other consideration.
 
 On
September 27, 2008, the Company issued John Lewis 2,000,000 Shares at $0.002 per
share for consulting services related to ATEP rendered to the Company and other
consideration.
 
 On
September 27, 2008, the Company issued Jeffory Smith 1,000,000 Shares at $0.002
per share for consulting services related to ATEP rendered to the Company and
other consideration.
 
 On
September 27, 2008, the Company issued Tamara Atwell 2,272,727 Shares at $0.002
per share for administrative services rendered to the Company and other
consideration.
 
 On
September 27, 2008, the Company issued Susan Sanchez 2,272,727 Shares at $0.002
per share for administrative services rendered to the Company and other
consideration.
 
 On
September 27, 2008, the Company issued Patrick Winn 2,272,727 Shares at $0.002
per share for administrative services rendered to the Company and other
consideration.
 
 On
September 27, 2008, the Company issued Phillip Parsons 2,272,727 Shares at
$0.002 per share for consulting services related to ATEP rendered to the Company
and other consideration.
  8.
SUBSEQUENT EVENTS
 
 Transfer of Related Party
Note Agreement
 
 At
various times the Company’s CEO transferred to third parties amounts that were
due to him under a note payable. Under the transfer agreement the third party
received a convertible note (included
in the“Wrap-Around Agreement”) with an interest rate of 15%, a term of
one year, and at the option of the holder at any time after the issuance of the
note, to convert all or any lesser portion of the outstanding principal amount
and accrued but unpaid interest into common stock at the price of 50 % discount
of the average three lowest bids on the day of conversion. The following is a
summary of the notes issued.
 
 On
October 1, 2008, the Company entered into a $14,950 Wrap-Around Agreement
with La Jolla Investment Partners. Under that agreement, La Jolla
Investment Partners converted $14,950 in Company debt it had acquired from
Robert Atwell into the Company’s common stock. As a result, the Company issued
La Jolla Investment Partners 7,000,000 Shares at $0.004 per share.
 
 On
October 1, 2008, the Company entered into a $14,950 Wrap-Around Agreement
with Tania Babeshoff. Under that agreement, Tania Babeshoff converted
$14,950 in Company debt she had acquired from Robert Atwell into the Company’s
common stock. As a result, the Company issued Tania Babeshoff 7,000,000 shares
at $0.004 per share.
 
 On
October 1, 2008, the Company entered into a $35,000 Wrap-Around Agreement with
AlphaTrade.
 
 On
October 2, 2008, the Company entered into a $14,950 Wrap-Around Agreement with
ATG, Inc.. Under that agreement, ATG converted $14,950 in Company debt it had
acquired from Robert Atwell into the Company’s common stock. As a result, the
Company issued ATG 7,000,000 shares at $0.003 per share.
 
 On
October 2, 2008, the Company entered into a Wrap-Around Agreement with Ongkaruck
Sripetch. Under that agreement, Ongkaruck Sripetch converted $14,950 in Company
debt he had acquired from Robert Atwell into the Company’s common stock. As a
result, the Company issued Ongkaruck Sripetch 7,000,000 shares at $0.003 per
share.
   13
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  8. SUBSEQUENT EVENTS -
continued
 
 Transfer
of Related Party Note Agreement-
continued
  On
November 7, 2008, under the Wrap-Around Agreement, AlphaTrade converted $35,000
in Company debt it had acquired into the Company’s common stock. As a result,
the Company issued AlphaTrade 8,750,000 shares at $0.0017 per
share.
 
 On
November 13, 2008, the Company entered into a $6,000 Wrap-Around Agreement with
Hope Capital.
 
 On
November 14, 2008, under the terms of the Wrap-Around Agreement, Hope Capital
converted $6,000 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued Hope Capital 18,000,000
shares at $0.0007 per share.
  On
November 18, under the terms of the Wrap-Around Agreement, Hope Capital
converted $7,000 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued Hope Capital 20,000,000
shares at $0.0008 per share.
  On
November 19, 2008, under the terms of the Wrap-Around Agreement, K & L
converted $5,500 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued K & L 22,000,000
shares at $0.0005 per share.
 
 On
November 25, 2008, under the terms of the Wrap-Around Agreement, K & L
converted $3,400 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued K & L 34,000,000
shares at $0.0003 per share.
 
 On
November 25, 2008, under the terms of the Wrap-Around Agreement, Hope Capital
converted $2,500 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued Hope Capital 34,000,000
shares at $0.0003 per share.
 
 On
December 2, 2008, under the terms of the Wrap-Around Agreement, K & L
converted $4,000 in Company debt it has acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued K & L 40,000,000
Shares at $0.0002 per share.
  On
December 3, 2008, under the terms of the Wrap-Around Agreement, Hope Capital
converted $2,000 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued Hope Capital 25,000,000
shares at $0.0002 per share
  On
December 8, 2008, under the terms of the Wrap-Around Agreement, K & L
converted $7,500 in Company debt it has acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued K & L 50,000,000
shares at $0.0003 per share.
 
 On
December 8, 2008, under the terms of the Wrap-Around Agreement, Hope Capital
converted $6,250 in Company debt it had acquired from Robert Atwell into the
Company’s common stock. As a result, the Company issued Hope Capital 50,000,000
shares at $0.0003 per share.
 
 Shares Issued for
Services
 
 For all
common stock issued the shares were valued based on the closing market price of
the Company’s common stock on the date of issuance and expensed immediately as
there were no future performance requirements.
  On
October 9, 2008, the Company authorized the issuance of 35,000,000 shares at
$0.0004 per share to Robert Atwell for services rendered to the Company and
other consideration.
 
 On
October 14, 2008, the Company authorized the issuance of 2,000,000 shares at
$0.0004 per share to Rodger Spainhower for Edgar services rendered to the
Company and other consideration.
  On
November 10, 2008, the Company authorized the issuance of 5,000,000 shares at
$0.0016 per share to Tamara Atwell for administrative services rendered to the
Company and other consideration.
 
 On
November 10, 2008, the Company authorized the issuance of 5,000,000 shares at
$0.0016 per share to Phillip Parsons for consulting services rendered to the
Company and other consideration.
 
 On
November 10, 2008, the Company authorized the issuance of 2,500,000 shares at
$0.0016 per share to Patrick Winn for administrative services rendered to the
Company and other consideration.
 
 On
November 19, 2008, the Company authorized the issuance of 5,000,000 shares at
$0.0005 per share to Philo Scott for accounting services rendered to the Company
and other consideration.
  On
November 21, 2008, the Company authorized the issuance of 25,000,000 shares at
$0.0002 per share to Tamara Atwell for administrative services rendered to the
Company and other consideration.
 
 On
November 21, 2008, the Company authorized the issuance of 25,000,000 shares at
$0.0002 per share to Phillip Parsons for consulting services rendered to the
Company and other consideration.
 
 On
November 21, 2008, the Company authorized the issuance of 25,000,000 shares at
$0.0002 per share to George Jackson for services rendered to the Company and
other consideration.
   14
 Camelot
Entertainment Group, Inc.
 (A
Development Stage Company)
 Notes
to Financial Statements
 (Unaudited)
  8.
SUBSEQUENT EVENTS-
continued
 Shares
Issued for Services-
continued
  On
November 21, 2008, the Company authorized the issuance of 25,000,000 shares at
$0.0002 per share to Robert Atwell for services rendered to the Company and
other consideration.
 
 On
December 2, 2008, the Company authorized the issuance of 5,000,000 shares at
$0.0002 per share to Philo Scott for accounting services rendered to the Company
and other consideration.
 
 On
December 3, 2008, the Company authorized the issuance of 5,000,000 shares Class
A Preferred Stock to Robert Atwell at $0.0002 per share for services rendered to
the Company.
 
 On
December 3, 2008, the Company authorized the issuance of 1,000,000 shares Class
A Preferred Stock to George Jackson at $0.0002 per share for services rendered
to the Company.
 
 On
December 3, 2008, the Company authorized the issuance of 5,000,000 shares Class
B Preferred Stock to Robert Atwell at $0.0002 per share for services rendered to
the Company.
 
 On
December 3, 2008, the Company authorized the issuance of 1,000,000 shares Class
B Preferred Stock to George Jackson at $0.0002 per share for services rendered
to the Company.
 
 On
December 3, 2008, the Company authorized the issuance of 5,000,000 shares Class
C Preferred Stock to Robert Atwell at $0.0002 per share for services rendered to
the Company.
 
 On
December 3, 2008, the Company authorized the issuance of 1,000,000 shares Class
C Preferred Stock to George Jackson at $0.0002 per share for services rendered
to the Company.
 
 On
December 8, 2008, the Company received notice from the State of Delaware that
its authorized common shares had been increased to 800,000,000.  The
effective date was set at December 4, 2008. In the event the Company’s stock
price remains at historical lows, the Company will need to continue increasing
the authorized in order to meet contractual obligations and to have sufficient
stock in reserve on a fully diluted basis, including potential note and
preferred share conversions.










15




ITEM 2.  MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
 
 The
matters discussed in this report contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
are subject to the "safe harbor" created by those sections. These
forward-looking statements include but are not limited to statements concerning
our business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; and statements concerning
assumptions made or exceptions as to any future events, conditions, performance
or other matters which are "forward-looking statements" as that term is defined
under the Federal Securities Laws. All statements, other than historical
financial information, may be deemed to be forward-looking statements. The words
"believes", "plans", "anticipates", "expects", and similar expressions herein
are intended to identify forward-looking statements. Forward-looking statements
are subject to risks, uncertainties, and other factors, which would cause actual
results to differ materially from those stated in such statements.
Forward-looking statements include, but are not limited to, those discussed in
"Factors That May Affect Future Results," and elsewhere in this report, and the
risks discussed in the Company's other SEC filings.
 
 Off-Balance Sheet
Arrangements
 
 We do not
have any off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
 
 Critical
Accounting Estimates
 
 The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. As such, in accordance with the use of
accounting principles generally accepted in the United States of America, our
actual realized results may differ from management’s initial estimates as
reported. A summary of our significant accounting policies is detailed in the
notes to the financial statements, which are an integral component of this
filing.  At September 30, 2008, significant accounting estimates
relate to the fair value of the Company’s derivative liabilities.
  Critical
Accounting Policies
 
 The
Company has defined a critical accounting policy as one that is both important
to the portrayal of the Company's financial condition and results of operations;
and requires the management of the Company to make difficult, subjective or
complex judgments. Estimates and assumptions about future events and their
effects cannot be perceived with certainty. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments. These estimates may change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company's operating environment changes.
 
 We have
identified certain policies as critical to our business operations and the
understanding of our results of operations; see our annual report on Form 10-KSB
for these policies. The impact and any associated risks related to these
policies on our business operations is discussed throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations, where
such policies affect our reported and expected financial results. In the
ordinary course of business, we have made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in
the preparation of our financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual results
could differ significantly from those estimates under different assumptions and
conditions. We believe that the following discussion addresses our most critical
accounting policies, which are those that are most important to the portrayal of
our financial condition and results of operations and require our most
difficult, subjective, and complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain.
  Going
Concern Uncertainties
 
 The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles accepted in the United States, which
contemplate continuation of Camelot as a going concern. However, Camelot has
experienced recurring operating losses and negative cash flows from
operations.  This is due in part to Camelot’s focus on developing
Camelot Studios at ATEP, also referred to herein as “CDT”, which has
necessitated considerable monetary and time commitments from Camelot in lieu of
Camelot pursuing revenue generating opportunities either through its Camelot
Film Group or Camelot Production Services Group divisions. Camelot’s Board of
Directors made the decision to have Camelot focus on the studio project due to
the long term importance of the studio and the impact successful completion of
that project would have on Camelot Studio Group and Camelot overall. As a
result, Camelot has had to delay several revenue generating projects, which it
is now in the process of implementing now that the Camelot Studios at ATEP
project has been tabled. Going forward, Camelot will focus on all three
divisions so as to maximize revenue generating possibilities while continuing to
develop additional studio properties.






16




ITEM 2.  MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION- continued
  Going Concern Uncertainties-
continued
 
 Camelot’s
continued existence is dependent upon its ability to increase operating revenues
and/or obtain additional equity financing. As part of our ongoing efforts to
obtain additional financing, in January 2008 Camelot agreed to sell up to 30% of
its interest in Camelot Development Group, LLC (“CDG”) to Camelot Studio
Investors (“CSI”) for up to $3,000,000 on an as needed basis. Proceeds from the
sale were to be used to retire debt, provide operating expenses for Camelot and
establish a reserve for contingency expenditures related to the Camelot Studios
at ATEP project and Camelot Studio Group. To date, Camelot has sold a 2%
interest for proceeds of $200,000 in cash and an additional 3% interest through
debt conversion.  As of September 30, 2008, Camelot has terminated its
involvement in the CDT project following a request by Janez to restructure the
Operating Agreement. This request has resulted in the CDT project being mutually
terminated by Camelot and the SOCCCD.
 
 On
December 27, 2006, we entered into a Securities Purchase Agreement with AJW
Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $1,000,000 in Callable
Secured Convertible Notes (the “Notes”) and (ii) warrants to purchase 100,000
shares of our common stock (the “Warrants”). This transaction is referred to
also as the “NIR Funding”.
 
 We
entered into an agreement with Eagle Consulting Group, Inc. (“Eagle”) on March
28, 2003, to provide operational funding for the Company, which expired on March
28, 2008. In exchange for twenty percent (20%)of the Company’s outstanding
common stock on a non-dilutive, continuing basis until the Company can secure
additional financing from another source, Eagle provided funding for the
Company’s annual audit, quarterly filings, accounts payable and other ongoing
expenses including office, phones, business development, legal and accounting
fees. On June 5, 2007, the Company completed its funding transaction with NIR
and its note holders, whereby the note holders have invested monies into the
Company, thereby ending the agreement with Eagle.
 
 In
addition, during 2006 and 2007 we also reached agreement with Scorpion Bay,
LLC (“Scorpion”), to provide short-term loans to Camelot on an as needed basis.
To date, all of these loans have been repaid. Further, The Atwell Group has
provided advances for certain Camelot expenses when necessary. It appears likely
that such funding and financial arrangements with our current investors, note
holders and our officers and directors should continue to be enough to meet all
of the Company's cash requirements in 2008. However, the Company must find
additional sources of financing in order to remain a going concern in the
future. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 New Accounting
Pronouncements
 
 In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141(R), “Business Combinations” (“SFAS 141(R)”), which replaces FAS 141. SFAS
141(R) establishes principles and requirements for how an acquirer in a business
combination recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any controlling interest;
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. FAS 141(R) is to be applied prospectively
to business combinations.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”), which addresses the accounting and reporting framework for minority
interests by a parent company. SFAS 160 also addresses disclosure requirements
to distinguish between interests of the parent and interests of the
noncontrolling owners of a subsidiary. SFAS 160 will become effective beginning
with our first quarter of 2009. The Company is currently evaluating the impact
of this standard on our financial statements.
  Capital
Structure
  The
Company has adopted Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"), which requires
companies to disclose all relevant information regarding their capital
structure.
 
 The
Company issued no shares in 2002 due to conversion, exercises or contingent
issuances. In 2003, the Company issued 200,000 shares due to the conversion of
notes payable retiring principal and accrued interest totaling $224,296. We
reached an agreement with Eagle Consulting Group, Inc. on March 28, 2003 to
provide operational funding for Camelot. In exchange for twenty percent (20%)of
the Company’s outstanding common stock on an anti-dilutive, continuing basis
until Camelot could secure additional financing from another source, Eagle
agreed to provide funding for Camelot’s annual audit, quarterly filings,
accounts payable and other ongoing expenses including office, phones, business
development, legal and accounting fees. In 2004, Eagle advanced $127,341 and in
2005 Eagle advanced $125,288. In accordance with the anti-dilutive provision,
the amount of stock due Eagle is calculated on a quarterly basis. This
anti-dilution provision to the agreement could have a material adverse effect on
our shareholders as it might continue for a substantial period of time and as a
result the dilutive effect to the shareholders cannot be fully determined until
the funding from Eagle ceases.
 
 On
January 5, 2005, the Company designated two classes of preferred stock, Class A
Convertible Preferred Stock and Class B Convertible Preferred Stock. Both
classes have a par value of $.001 and 10,000,000 shares authorized. The Series A
is reserved for employees, consultants and other professionals retained by the
Company and the Series B is reserved for the Board of Directors. On June 30,
2005, the Company issued 51,000 shares of each Class A Convertible and Class B
Convertible Preferred Stock to Robert Atwell. The Company recorded expense of
$3,366,000 in connection with the Preferred Stock issuances.




17




ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION-
continued
  Capital Structure -
continued
  On
October 25, 2007, the Company entered into a Share Issuance Agreement (“SIA”)
with Zuckerman, Kocmur and Scorpion (“JJT”). According to the terms and
conditions of the SIA, as additional consideration for Janez becoming a joint
venture partner with CDG, and in consideration for additional business
development and consulting efforts provided by JJT, JJT received 800,000 shares
of our common stock. 200,000 shares were issued to Zuckerman, 200,000 shares
were issued to Kocmur, these shares were valued at the market price at the date
of issue $0.60 and recorded as professional services in the amount of $240,000.
The 400,000 shares were issued to Scorpion in Preferred Series A and B stock
were recorded at the market price at the date of issue and recorded as
professional services in the amount of $307,276.   In addition,
Zuckerman, Wilson and Joseph Petrucelli were nominated to serve on our Board of
Directors. The parties also agreed on a common stock structure, which provides
JTT and Robert P. Atwell, Chairman (“Atwell”) with anti-dilution protection.
Further, the SIA directs the Company to seek stockholder approval to increase
the authorized shares of the common stock to 400,000,000 and increase the Board
of Directors from five to seven members.
 
 In
May 2008, Jeff Zuckerman, Joseph Petrucelli and Timothy Wilson resigned from the
Board of Directors.  The company will search for replacements for the
three board of director positions.
  On September
30, 2008, there were 1,196,510  shares outstanding of our $0.001 par
value Series B ,Convertible Preferred Stock. The Series B Preferred converts to
10 shares of common stock for every one share of Series B Preferred Stock. Each
share of Series B Preferred Stock is entitled to 1,000 votes. Series B Preferred
ranks superior to all other classes of stock.
 
 On
September 30, 2008, there were 1,347,510 shares outstanding of our $0.001 par
value Series A Convertible Preferred Stock. The Series A Preferred converts to
four shares of common stock for every one share of Series A Preferred Stock.
Each share of Series A Preferred Stock is entitled to 50 votes. Series A
Preferred ranks superior to our common stock and ranks junior to our Series B
Preferred Stock.
  On
September 30, 2008, there were 1,151,500 shares outstanding of our $0.001 par
value Series C Convertible Preferred Stock. The Series C Preferred converts to
one share of common stock for every one share of Series C Preferred Stock. Each
share of Series C Preferred Stock is entitled to one vote. Series C Preferred
ranks junior to our Series A and B Preferred Stock.
 
 Plan of
Operations
 
 Overview
 
 Camelot
Entertainment Group is working to become a fully integrated, broad based
entertainment company whose planned future global operations expect to encompass
motion picture production and distribution, television programming, production
and syndication, home video acquisition and distribution, digital media
production and distribution, development and operation of studio facilities,
development of new technologies, and distribution of filmed entertainment
worldwide. We are planning to become a global leader in the creation,
production, distribution, licensing and marketing of all form of creative
content and their related businesses across all current and emerging media and
platforms. If we are successful in implementing our business model, we could
have a major impact on the industry in every aspect from feature film,
television and home entertainment production and distribution to DVD, digital
distribution, licensing and entertainment related digital media. This is a long
term process and as a result the Company has yet to generate any significant
revenues. The Company has been severely affected by the recent worldwide
economic downturn and has seen every aspect of its operations affected. Despite
this serious and unplanned sequence of events, the Company continues to work on
implementing its business model and achieving our it's goals.
 
 Our
Company is divided up into three major divisions, Camelot Film Group, Camelot
Studio Group and Camelot Production Services Group.
 
 During
the first half of fiscal year 2008, the Company’s focus continued to be on two
specific areas: the ongoing development of Camelot Studios at ATEP under our
Camelot Studio Group division and the emergence of Camelot Film and Media Group
as it prepares to unveil its Camelot Production Model (“CPM”). During the second
half of 2008, the Company has to refocused its efforts on shorter term revenue
generating activities, including the unveiling of the CPM and providing various
services through our Camelot Production Services Group division. In order to
implement our plans to become a global media and entertainment company, it is
critical that we build a solid foundation to build upon, and that begins with
making sure that each division is carefully structured and that their respective
business models are implemented in accordance with those designs. In addition,
the Company is negotiating two acquisitions through its Camelot Film Group
division, with letters of intent expected to be executed during the fourth
quarter of 2008 or in early 2009, depending upon worldwide economic
conditions.
 
 In
addition to the planned acquisitions, we are ramping up our activity in both
Camelot Features and Camelot Distribution, divisions of Camelot Film Group, with
a number of options and projects scheduled to be announced during this quarter
and the first quarter of 2009. We have continued working on our late stage
bridge financing program and consulting services program through our Camelot
Production Services Group division. In addition, our studio group
continues to work on potential studio sites in California and
Louisiana.
 
 Our
Financial Statements have been prepared on a going concern basis, which
contemplates the realization of assets and liabilities and commitments in the
normal course of business. In the near term, we expect operating costs to
continue to exceed funds generated from operations. As a result, we expect to
continue to incur operating losses and we may not have sufficient funds to grow
our business in the future. We can give no assurance that we will achieve
profitability or be capable of sustaining profitable operations. As a result,
operations in the near future are expected to continue to use working
capital.




18





ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION-
continued
  Liquidity
and Capital Resources
 
 We have a
limited history of operations as a film, television and digital media production
and distribution company. We believe that, due to the complex nature of our
business model and the ensuing long-term sales cycles, period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied on as an indication of future performance.  Our current
liquidity and capital resources are provided principally through our current
agreements with The Atwell Group, Inc., which are discussed below under Recent
Financing. During the nine months ended September 30, 2008, Camelot had no
revenue producing operations, at September 30, 2008 a negative working capital
of $1,104,809
and an accumulated deficit from Inception of $15,974,767.
These conditions, the loss of financial support from affiliates, and the failure
to secure a successful source of additional financial resources raise
substantial doubt about Camelot’s ability to continue as a going concern. The
financial statements do not include any adjustments to reflect the possible
future effects on the classification of liabilities that may result from the
outcome of this uncertainty.
 
 Management’s
plans with respect to the current situation consists of restructuring its debt
and seeking additional financial resources from its existing investors, note
holders and CEO Robert Atwell.   During the nine months ended
September 30, 2008, the Company sold 2% of its interest in CDG for $200,000 and
this money was used fund Camelot Entertainment Group’s operating expenses and to
reduce related party payables.  As of August 2008, NIR loaned the
Company $160,000 in the third quarter of 2008.
 
 Recent
Financing
 
 Camelot
Studio Investors
 
 In
January 2008, we agreed to sell up to 30% of our interest in Camelot Development
Group, LLC (“CDG”) to Camelot Studio Investors LLC (“CSI”) for up to $3,000,000
on an as needed basis. CDG, which is part of our Camelot Studio Group division,
is 50% joint venture partner with Janez Investments Tustin XI (“JIT”) in Camelot
Development Tustin, LLC (“CDT”). CDT was working with the South Orange County
Community College District (“SOCCCD”) to become the master developer for the
Advanced Technology and Education Park (“ATEP”) campus in Tustin,
California, which was to include Camelot Studios at ATEP.
  CSI
receives 1,000 shares of our $0.001 par value Series C Convertible Preferred
Stock for each one half of one per cent (.05%) of CDG purchased by CSI. The
managing member of CSI is Scorpion Bay, LLC (“Scorpion”), which is managed
by Timothy Wilson, one of our former at-large directors. The proceeds from the
sale were to be utilized to retire debt, pay operating expenses and provide a
contingency reserve for Camelot Studio Group and the Camelot Studios at ATEP
project.  As of March 31, 2008, the company received $200,000 from
CSI, the shares were issued in August 2008.   During the second and
third quarter, the Company did not receive any funds from CSI and the joint
venture partner Janez has indicated that no funds will be raised in the future
from CSI unless the CDT Operating Agreement was restructured. As a result, the
Tustin project was eventually terminated under mutual agreement between Camelot
and the SOCCCD.
 
 NIR
Financing
 
 On
December 27, 2006, we entered into a Securities Purchase Agreement with AJW
Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $1,000,000 in Callable
Secured Convertible Notes (the “Notes”) and (ii) warrants to purchase 100,000
shares of our common stock (the “Warrants”). This transaction is referred to as
the “NIR Financing”.
 
 Pursuant
to the Securities Purchase Agreement, the Investors will purchase the Notes and
Warrants in two tranches as set forth below:
 
 1.
              At
      closing on December 27, 2006 (“Closing”), the Investors purchased Notes
      aggregating $600,000 and Warrants to purchase 100,000 shares of CMEG
      common stock;
 
 2.
              Upon
      effectiveness of the Registration Statement, on June 5, 2007 the Investors
      purchased Notes aggregating
$400,000.
 
 The Notes
carry an interest rate of 8% per annum, subsequently increased to 10%, and a
maturity date of December 27, 2009. The notes are convertible into CMEG common
shares at the applicable percentage of the average of the lowest three (3)
trading prices for CMEG shares of common stock during the twenty (20) trading
day period prior to conversion. The “Applicable Percentage” means 40%;,
subsequently changed to 50%, provided, however, that the Applicable Percentage
shall be increased to (i) 55% in the event that a Registration Statement is
filed within thirty (30) days of the closing.




19




ITEM 2. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION-
continued
  NIR Financing -
continued
 
 At our
option, we may prepay the Notes in the event that no event of default exists,
there are a sufficient number of shares available for conversion of the Notes
and the market price is at or below $25.00 per share. In addition, in the event
that the average daily price of the common stock, as reported by the reporting
service, for each day of the month ending on any determination date is below
$25.00, we may prepay a portion of the outstanding principal amount of the Notes
equal to 101% of the principal amount hereof divided by thirty-six (36) plus one
month's interest. Exercise of this option will stay all conversions for the
following month. The full principal amount of the Notes is due upon default
under the terms of Notes. In addition, we have granted the Investors a security
interest in substantially all of our assets and intellectual property as well as
registration rights.
 
 We
simultaneously issued to the Investors seven year warrants to purchase 100,000
shares of our common stock at an exercise price of $15.00.
  In
connection with the recent financing and pursuant to a Structuring Agreement, we
also issued to Lionheart Associates, LLC d/b/a Fairhills Capital (“Lionheart”)
warrants representing the right to purchase up to 5,826 shares of our common
under the same terms as the Warrants issued to the Investors.
  The
Investors have contractually agreed to restrict their ability to convert the
Notes and exercise the Warrants and receive shares of our common stock such that
the number of shares of our common stock held by them and their affiliates after
such conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of CMEG’s common stock.
 
 As a
result of our SB-2 Registration, a total of 132,284 shares of common stock were
registered. They were all converted at various prices during 2007.
  The
aggregate principal amount of the Notes is $1,056,748. The estimated conversion
price of the Notes is $0.001 based on the following: $0.001 was the average of
the lowest three (3) trading prices for our shares of common stock during the
twenty (20) trading days prior to September 30, 2008, less a 50% discount.
Thus, at a discounted price-per-share of $0.001, 1,056,748,000 shares of
the Company's common stock would be issuable upon conversion of $1,056,748 into
common shares of the Company ("Conversion Shares"). However, due to contractual
limitations, the most that could be converted in any singular conversion is
approximately 11,527,000 shares, or 4.99% of the outstanding. In addition, there
are contractual limitations that could be imposed by Camelot that would result
in the inability of the note holders to convert during any given 30-day
period.
 
 The
following table shows the effect on the number of shares issuable upon full
conversion, in the event the common stock price declines by 25%, 50% and 75%
from its the most recent trading price.  The company’s shares cannot
be converted below par value of .001.
  Price
      Decreases By9/30/2008
              
              
              
              25%
              
              
              
              50%
              
              
              
              75%Average
      Common Stock Price (as defined above)
              
              $
              0.001
              
              
              $
              0.00
              
              
              $
              0.000
              
              
              $
              0.00Conversion
      Price (40% Discount)
              
              $
              0.001
              
              
              $
              0.001
              
              
              $
              0.000
              
              
              $
              0.00100%
      Conversion Shares
              
              
              1,056,748,000
 
 There is
no limit to the number of shares that we may be required to issue upon
conversion of the Notes, as it is dependent upon our share price, which varies
from day to day. This could cause significant downward pressure on the price of
our common stock.
 
 Additional
NIR Financing
 
 On August
28, 2008, we entered into an additional Securities Purchase Agreement with AJW
Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $160,000 in Callable
Secured Convertible Notes (the “Notes”) and (ii) warrants to purchase 20,000,000
shares of our common stock (the “Warrants”). This transaction is referred to as
the “Additional NIR Financing”.
 
 The Notes
carry an interest rate of 10% per annum and a maturity date of December 27,
2009. The notes are convertible into CMEG common shares at the applicable
percentage of the average of the lowest three (3) trading prices for CMEG shares
of common stock during the twenty (20) trading day period prior to conversion.
The “Applicable Percentage” means 50%; provided, however, that the Applicable
Percentage shall be increased to (i) 55% in the event that a Registration
Statement is filed within thirty (30) days of the closing.
  At our
option, we may prepay the Notes in the event that no event of default exists,
there are a sufficient number of shares available for conversion of the Notes
and the market price is at or below $.001 per share. In addition, in the event
that the average daily price of the common stock, as reported by the reporting
service, for each day of the month ending on any determination date is below
$.001, we may prepay a portion of the outstanding principal amount of the Notes
equal to 101% of the principal amount hereof divided by thirty-six (36) plus one
month's interest. Exercise of this option will stay all conversions for the
following month. The full principal amount of the Notes is due upon default
under the terms of Notes. In addition, we have granted the Investors a security
interest in substantially all of our assets and intellectual property as well as
registration rights.
 
 We
simultaneously issued to the Investors seven year warrants to purchase
20,000,000 shares of our common stock at an exercise price of
$0.001.






20




ITEM 2. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION-
continued
  Scorpion Bay
Loans
 
 On June
15, 2007, we entered into a loan agreement with Scorpion Bay, LLC
(“Scorpion”), whereby Scorpion loaned Camelot $300,000 in three tranches of
$100,000 each on June 15, July 15 and August 15 2007. Interest on the loan was
in the form of 3,000,000 shares of our $0.001 par value common stock (“Shares”).
The loan was due and payable on November 15, 2007. The loan was secured with a
blanket note and second deed of trust on real property owned by Robert and
Tamara Atwell. Robert Atwell is the Chairman, President and CEO of Camelot
(“Atwell”). In the event the loan was not paid by the due date, the note could
be extended by Scorpion at a cost of 7,500 Shares for each 30-day extension. On
or about October 25, 2007, Scorpion agreed to release and/or transfer the
security interest provided by Atwell in reference to the $300,000 loan to the
Company by Scorpion on June 15, 2007 and the amount due to Scorpion was
transferred to real property owned by Atwell. As a result, Camelot will not
incur any additional interest charges and/or fees connected with the loan.
Scorpion received a total of 130,000 Shares (including 50,000 shares issued to
Dolphin Communities) in connection with the loan and events related
thereto.
 
 On
November 21, 2006, we entered into a loan agreement with Scorpion, whereby
Scorpion loaned Camelot $250,000. Interest was paid in the form of 5,000 Shares.
As additional consideration, Scorpion received a total of 15,000 Shares. The
loan was due and payable on March 22, 2007. The loan was secured with a blanket
note and second deed of trust on real property owned by Robert and Tamara
Atwell. In the event the loan was not paid by the due date, the note could be
extended by Scorpion at a cost of 15,000 Shares for the first 30-day extension,
20,000 Shares for the second 30-day extension, 25,000 Shares for the third
30-day extension and so forth. The note was paid in full on June 5, 2007. As a
result, Scorpion received a total of 80,000 Shares in connection with the loan
and events related thereto.
 
 Additional
Scorpion Bay Loan
 
 On
November 23, 2007, Scorpion entered into a loan agreement with Love Bug
Management Corp. (“Love Bug”), an entity owned by Atwell, whereby Scorpion
loaned Love Bug $100,000. The proceeds were used for Atwell and Camelot
expenses. As a result of this loan, Atwell paid approximately $36,000 in direct
Camelot expenses. The loan was secured with a blanket note and second deed of
trust on real property owned by Robert and Tamara Atwell. Scorpion received
47,000 Shares in connection with the loan and events related
thereto.
 
 The
Atwell Group
 
 During
the nine months ended, September 30, 2008, The Atwell Group, Inc. has paid for
expenses on behalf of Camelot as needed. With the occurrence of other financial
resources becoming available, the amount of resources committed by The Atwell
Group has diminished when compared to prior years. Our Chairman, Robert Atwell,
owns the Atwell Group, Inc.
 
 RESULTS
OF OPERATIONS
 
 General
 
 Available
Information and Website
 
 The
Company’s annual reports on Form 10-KSB, quarterly reports on
Form 10-QSB, current reports on Form 8-K and any amendments to such
reports filed with or furnished to the Securities and Exchange Commission
(“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), are available free of charge on the
Company’s website at www.camelotfilms.comas soon
as reasonably practicable after such reports are electronically filed with the
SEC.
 
 Business
Development
 
 Camelot
Films®, Inc., now a subsidiary of the Company, was originally founded in 1978 by
our current Chairman, Robert P. Atwell, as a feature film production and film
finance management company. Camelot Films was originally incorporated in
Delaware and had offices in London, England, Los Angeles, California and New
York, New York. Between 1978 and 1988, Camelot Films was actively involved in
the development, finance and production of independent feature films. Between
1988 and 2003, Camelot Films was primarily active in the development and
financial structuring of independent feature films and the ongoing development
of its Camelot Production Model (“CPM”). Beginning in 2003, Camelot became
active once again in the production and distribution of independent feature
films, along with its development and finance activities.
 
 On
October 1, 1999, the Company’s predecessor corporate entity was incorporated in
Delaware as Dstage.com, Inc.
 
 On March
31, 2003, the operations of Camelot Films were absorbed into the Company as part
of a corporate restructuring. As a result of this restructuring, the Company’s
new management team, headed by Mr. Atwell, adopted a new business model to
pursue the development, production, marketing and distribution of motion
pictures.




21




ITEM 2. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION-
continued
  Business Development -
continued
  On April
16th, 2004, the Company officially changed its name to Camelot Entertainment
Group, Inc.
 
 Our
initial business development plan was to become a vertically integrated media
enterprise that creatively conceptualizes, finances, produces, and distributes
original entertainment content across various media, including motion pictures,
television, interactive gaming, radio and a multitude of digital media
channels.  Through the absorption of Camelot Films and the
establishment of key operating divisions, including Camelot Distribution Group
Inc., a Nevada corporation, we began to implement our new business model of
acquiring, developing, producing, marketing and distributing motion pictures,
television and digital media on a limited basis.
 
 During
2004 and 2005, we formally acquired our three Camelot Films subsidiaries,
Camelot Films, Inc., a Nevada corporation, Camelot Films, Inc., a California
corporation, and Camelot Films, Inc., a Delaware corporation. We established a
family film subsidiary, Ferris Wheel Films, Inc., a Nevada corporation. In
September 2005, we established Camelot Studio Group with the responsibility of
acquiring, designing, developing and operating our planned major studio
complexes. Also in September 2005, we began the process of assessing the
feasibility of an educational studio complex in Tustin, California. Designed to
be a state-of-the-art education and technology campus with an emphasis on film,
television and digital media, the project known as the “Advanced Technology and
Education Park”, which was planned to be the home base for Camelot Studio
Group operations, has been tabled. Camelot Studio Group is currently assessing
the feasibility of additional complexes in Anaheim, San Diego and New
Orleans.
  During
fiscal year 2006, with the emergence of our studio group operations, we decided
to implement a corporate structure that would feature the parent company,
Camelot Entertainment Group, Inc., and three subsidiaries, Camelot Film Group,
Camelot Studio Group and Camelot Production Services Group. By establishing
three top-level divisions, we expect to be able to streamline our management
efforts in the future, concentrate cost centers and expand revenue
potential.
 
 During
fiscal year 2008, our efforts have been focused on our first major studio
complex through our Camelot Studio Group division and on the continuing
development of projects through our Camelot Film Group division. We also
continued to make progress toward the planned launch of our various divisions
described herein. In September, 2008, following the postponement of our first
major studio complex, management decided to refocus our efforts on the
operations of Camelot Film Group, including the development and acquisition of
several projects to be produced and distributed under Camelot Features and
Camelot Distribution.  While the focus has been shifted to production
and distribution activities, we have continued to pursue Camelot Studio Group
opportunities, including potential studio sites in San Diego, California, New
Orleans, Louisiana and Anaheim, California.   In addition, we
have continued to negotiate letters of intent to acquire two companies, one
active in production and international distribution, one active in domestic
distribution. In our production services group, we have continued to work on
rolling out our late stage bridge financing program and have stepped up
consulting activities.
  NINE
MONTH PERIOD SEPTEMBER 30, 2008, COMPARED TO THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2007:
  The
Company did not generate any revenue during the nine months ended,
September 30, 2008 or 2007.
 
 All
expenses incurred during the comparative periods were general and administrative
in nature.
 
 The
Company has incurred $12,886,420 of general and administrative expenses since
its inception. General and administrative expenses were $ 874,769 for
the nine months ended September 30, 2008, respectively, compared to
$1,177,537 for the nine months ended September 30, 2007. Decrease in
expenses primarily due to a reduction in professional fees and services
primarily related to the studio project.  Camelot Development, LLC
during the nine months ended September 30, 2008, paid the majority of these
expenditures.
 
 The
general and administrative expenses for the nine-month period were comprised of
$396,300 of officers salaries and $268,218 of professional services, rent
$58,455, administrative costs and fees $34,270, insurance costs $10,196,
Screenplay fees $79,700 and $27,630 in other administrative costs.
 
 Other
income (expense) for the nine months ended September 30, 2008, was $1,176,449,
which consisted of a $200,000 gain on sale of a 2% interest in CSI and a gain of
$1,222,187
from the change in the fair value of the Company’s derivative liabilities on its
convertible note and preferred stock. Interest expense during the nine months
ended, September 30, 2008 was $245,738.  During
the nine months ended September 30, 2007, other income (expense) of $601,517
consisted of a gain on derivative liabilities of $1,187,452 and interest expense
of $585,935.
  THREE-MONTH
PERIOD JULY 1  - SEPTEMBER 30, 2008, COMPARED TO THREE PERIOD JULY 1 -
SEPTEMBER 30, 2007:
 
 General
and administrative expenses were $472,957 for the three-month period ended,
September 30, 2008, respectively, compared to $238,738 for the three-month
period ended, September 30, 2007.  Increase in expenses is primarily
due to a stock issued for professional fees and services related to the wrap up
of the studio project.  Camelot Development, LLC during the nine
months ended, September 30, 2008, paid the majority of these
expenditures.
 
 The
general and administrative expenses for the three-month period were comprised of
$142,300 of officer’s salaries, $22,380 for office rent, $207,390 professional
fees and services, screenplay fees $79,700 and $21,187 in other administrative
costs.
 
 Other
income (expenses) for the three-month period ended, September 30, 2008 was
$241,174,
which consisted of a gain of $327,522
from the change in the fair value of the Company’s derivative liabilities on its
convertible note and preferred stock. Interest expense during the three months
ended, September 30, 2008 was $86,348.  During
the three months ended September 30, 2007, other income (expense) of $663,203
consisted of a gain on derivative liabilities of $785,182
and interest expense of $121,979.




22





ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 FACTORS THAT MAY AFFECT FUTURE
RESULTS
 
 Risk
Factors
 
 Current
Worldwide Economic Conditions Have Severely Affected Our Ability to Generate
Investment and Revenue
 
 Our operations have been severely
affected by the current worldwide economic downturn. Our ability to raise
funding has been severely curtailed due to turmoil in the financial markets and
an historically low stock price for our stock. Without incoming cash flow, we
have relied heavily on our Chairman Robert Atwell to cover our ongoing operating
expenses until market conditions settle and we are able to raise operating
funds. In addition, the lack of funds has hampered our ability to generate
ongoing revenues which in turn has increased the downward pressure on our stock
price. In the event Mr. Atwell is no longer able to advance funds to the Company
and if current market conditions continue to deteriorate thus precluding any
future financings, our ability to operate would be severely
affected.
 
 We
have an Accumulated Deficit and we have a Limited History of Operations as a
Motion Picture Company
 
 We
have incurred losses in each operating period since our inception on October 12,
1999. Operating losses may continue, which could adversely affect financial
results from operations and stockholder value, and there is a risk that we may
never become profitable.
 
 Ability
to Achieve Profitable Operations
 
 Our
operations to date have been limited. Our focus has been on our Camelot Studio
Group division, which has limited our ability to fully implement our other major
divisions. The development and implementation of our business model is a
long-term process. The normal fiscal cycle of a feature film does not typically
generate revenues for 18 to 24 months. Subsequent to that, the fiscal life cycle
of a feature film is close to 7 years initially, with affiliate, residual and
syndication revenues continuing for years. As of December 31, 2007, we have only
one project in production. As a result of our long sales cycles, it is difficult
to determine with any certainty how our short-term financial picture will
evolve. In the near term, we expect operating costs to continue to exceed funds
generated from operations. As a result, we expect to continue to incur operating
losses and while we have resources available to grow our business in 2008, we
may not have sufficient funds to grow our business in the future. We can give no
assurance that we will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the future could require a
significant increase in the use of working capital.
 
 To
successfully grow the individual divisions of the business, we must begin to
devote the time necessary to fully implement their respective business models,
decrease our cash burn rate over time, begin to generate revenues in order to
improve our cash position and establish ongoing revenues in each division, and
succeed in our ability to raise additional capital through a combination of
primarily public or private equity offering or strategic alliances. We also
depend on certain consultants and our executives, and the loss of any of those
consultants or executives, may harm our business.
  We
have a limited operating history as a motion picture, television and digital
media company in which to evaluate our business
 
 As
Camelot Entertainment Group, we have a limited operating history as a motion
picture, television and digital media company. To date, we have generated no
revenues and a limited operating history as a motion picture company upon which
an evaluation of our future success or failure can be made. Our primary focus
has been the development of Camelot Studios at ATEP and to a lesser scale
project development within Camelot Film Group. As a result, many of our planned
divisions are not operational or have very limited operations as of September
30, 2008. While current company assets and financial commitments are suitable
for the projected financial needs forecast during 2008, we do not know at this
time the outlook for 2009 and beyond. No assurances of any nature can be made to
investors that the company will be profitable. There can be no assurances that
our management will be successful in managing the Company as a motion picture,
television and digital media company.
 
 We
will require additional funds to achieve our current business strategy and our
inability to obtain additional financing could cause us to cease our business
operations in the future if suitable funding is not secured
 
 Even with
the proceeds from offerings and other resources in 2008, we will need to raise
additional funds through public or private debt or sale of equity to fully
achieve our business strategy. Such financing may not be available when needed.
Even if such financing is available, it may be on terms that are materially
adverse to your interests with respect to dilution of book value, dividend
preferences, liquidation preferences, or other terms.
 
 Our
ability to grow our company through acquisitions, business combinations and
joint ventures, to maintain and expand our development, production and
distribution of motion pictures, television programming and digital media and to
fund our operating expenses will depend upon our ability to obtain funds through
equity financing, debt financing (including credit facilities) or the sale or
syndication of some or all of our interests in certain projects or other assets.
Our business plan requires a substantial investment of capital. The production,
acquisition and distribution of motion pictures require a significant amount of
capital. A significant amount of time may elapse between our expenditure of
funds and the receipt of commercial revenues from our motion pictures, if any.
This time lapse requires us to fund a significant portion of our capital
requirements from private parties, institutions, and other sources. Although we
intend to reduce the risks of our production exposure through strict financial
guidelines and financial contributions from broadcasters, sub-distributors, tax
shelters, government and industry programs and studios, we cannot assure you
that we will be able to implement successfully these arrangements or that we
will not be subject to substantial financial risks relating to the production,
acquisition, completion and release of future motion pictures. If we increase
our production slate or our production budgets, we may be required to increase
overhead, make larger up-front payments to talent and consequently bear greater
financial risks. Any of the foregoing could have a material adverse effect on
our business, results of operations or financial condition.
 
 If we are
unable to obtain financing in the future on reasonable terms, we could be forced
to delay, scale back or eliminate certain elements of our business model. In
addition, such inability to obtain financing in the future on reasonable terms
could have a material negative effect on our business, operating results, or
financial condition to such extent that could be forced to restructure, file for
bankruptcy, sell assets or cease operations, any of which could put our Company
and any investments into our Company at significant risk.




23




ITEM 3.  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK- continued
  Risk
Factors-
continued
 
 We
are subject to a working capital deficit, which means that our current assets at
September 30, 2008, were not sufficient to satisfy our current
liabilities
 
 As of
September 30, 2008, we had a working capital deficit of $1,104,809,
which means that our current liabilities of $1,104,935
exceeded our current assets of $126 by that amount on September 30, 2008.
Current assets are assets that are expected to be converted to cash within one
year and, therefore, may be used to pay current liabilities as they become due.
Our working capital deficit means that our current assets on September 30, 2008,
were not sufficient to satisfy all of our current liabilities on that date. We
will have to raise additional capital or debt to fund the deficit.
  Our Contemplated
Acquisitions and Related Letters of Intent May Be Delayed Due to Current
Worldwide Economic Conditions
 
 With the
financial uncertainty in the worldwide markets, our ability to successfully
complete our planned acquisitions during the fourth quarter of 2008 may be
adversely affected, resulting in delays which could push completion into 2009.
As a result, the related letters of intent and other transactional documents
could be adversely affected with changes in terms and conditions, pricing and
other factors which eventually could cause us or the companies being acquired to
reconsider the acquisition transactions.
 
  ITEM 4.  CONTROLS AND
PROCEDURES
 
 In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), as of the end of the period covered by this
Quarterly Report on Form 10-Q, Camelot’s management evaluated, with the
participation of Camelot’s principal executive officer and principal financial
officer, the effectiveness of the design and operation of Camelot’s disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under
the Exchange Act). Based on their evaluation of these disclosure controls and
procedures, Camelot’s chief executive officer and Camelot’s chief financial
officer have concluded that the disclosure controls and procedures were not
effective as of the end of the period covered by this report. While conducting
the review of the interim financial statements as of and for the period ended
March 31, 2008, our independent auditors found numerous adjustments that
indicated a material weakness in our controls over financial reporting. It is
our plan with additional funding to devote more resources to this very critical
function.
  It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless how remote.
 
 Changes
in Internal Control Over Financial Reporting
  To the
best of our knowledge and belief, there has been no change in our internal
controls over financial reporting during the three months ended, September 30,
2008, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reports.
 
 Code of
Ethics
 
 We have
adopted a Code of Business Conduct that applies to all our directors, officers
(including our principal executive officer and principal financial officer) and
employees. The Code of Business Conduct can be found on our website at www.camelotfilms.com.
We plan to also post on this section of our website any amendment to the Code of
Business Conduct, as well as any waivers that are required to be disclosed in
accordance with Securities and Exchange Commission or market
regulations.










24




PART II. OTHER
INFORMATION
 
 ITEM 1.  LEGAL
PROCEEDINGS
 
 None.
 
  ITEM 2.  CHANGE IN
SECURITIES
 
 None
 
  ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES
 
 None
 
  ITEM 4.  SUBMISSION OF MATTERS
TO VOTE OF SECURITIES HOLDERS
 
 None
   ITEM
5.  OTHER INFORMATION
 
 On
February 18, 2008
 
 Authorized
common shares were increased from 300,000,000 to 500,000,000
shares.
 
 On August
28, 2008
 
 Company
authorized a stock split of 100 to 1 for all classes of stock.
 
 On
December 8, 2008, we received notice from the State of Delaware that our
authorized common shares were increased from 500,000,000 to 800,000,000 shares
with an effective date of December 4, 2008.




ITEM
6.  EXHIBITS AND REPORTS ON FORM 8-K





a.
Exhibits





31.1
            Certificate of the Chief Executive Officer
      pursuant to Rule 13a-14(a) of the Exchange Act of 1934 as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of
  2002





31.2
            Certificate of the Chief Financial Officer
      pursuant to Rule 13a-14(a) of the Exchange Act of 1934 as adopted pursuant
      to Section 302 of the Sarbanes-Oxley Act of
  2002





32.1
            Certification of Chief Executive Officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




32.2
            Certification of Chief Financial Officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.







b.
Reports on Form 8-K





None







25




SIGNATURES





In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.






CAMELOT
      ENTERTAINMENT GROUP, INC.(Registrant)Date:
      December 12, 2008
            By:
            /s/ ROBERT
      P. ATWELLTitle:
      Chief Executive Officer




Date: December
      12, 2008
            By:
            /s/ GEORGE
      JACKSONTitle:
      Chief Financial Officer





























26